China is filling all possible vacuums left by US abdication from competition in the economic and strategic arenas.
On 6 July, Friday, the bulk carrier Peak Pegasus, laden with US soybean was desperately trying to make it to the Dalian port in northeast China before the 12 noon deadline to evade the tit-for-tat 25% levy. As the US-imposed deadline came into effect, China accused the United States of violating the WTO rules and thus setting off “the largest trade war in economic history, demonstrating a typical hegemonic attitude against the rules of world trade”.
The fears of a US-China trade war loomed large early this year in March when US President Donald Trump signed a presidential memorandum that would impose tariffs on up to $60 billion of imports from China. In April, the US barred ZTE, one of the largest telecom companies in China from purchasing components from American companies for seven years, for trading with Iran and North Korea. A deal, whereby the ZTE has agreed to pay $1 billion fine to the US and embed a US selected compliance team in the company for a period of 10 years, has given the Chinese giant a reprieve. Both sides were hoping for a similar breakthrough during the 2-3 June trade talks, however, the talks failed as the US stuck to its guns that China must import more from the US, but failed to assure China that it would not impose duties on Chinese exports.
On 15 June, the US announced 25% tariffs on 1,102 Chinese products, amounting to $50 billion, of which the first batch of $34 billion, it said, would come into effect on 6 July at 12.01 pm, Chinese time. China retaliated immediately by imposing duties on 629 US products worth $50 billion, mostly covering agro, automobiles and aquatic products. It reserved the right to impose similar duties on chemical, pharma and energy products, perhaps for the second batch of tariffs. China also claimed that about 59% of the $34 billion of the products that have been levied duties by the US are produced by foreign-invested enterprises in China. The US was undeterred, on 18 June, it ordered its trade representative to further identify Chinese products worth $200 billion for further levies. It threatened that if China retaliated, the US would impose additional duties of 10%. The worth of goods from China was further raised to $500 billion, covering almost the entire value of Chinese exports to the US.
Why is the US initiating a trade war with China? On the surface, the Trump administration has accused China of the so-called theft of intellectual property rights, taking advantage of the openness and democratic systems of foreign countries, subsidising its enterprises, raising barriers to external, political, cultural and economic influences at home, thus causing the US a trade deficit of $375 billion. However, underneath, everyone, including the Americans, knows that China has emerged as a challenger to the “established hegemon” and disrupted the latter’s “established norms” of international order. In the last 40 years of reforms, China has indeed raised its stakes in the global economy; it has become the second largest economy in the world, with its GDP of around $14 trillion accounting for around 15% of the global economy. It is projected that if China is able to maintain the present growth rate, it will dislodge the US as the largest economy by 2027. No wonder, the national security strategy of the US in December 2017 labelled China as the “strategic competitor” from a “potential competitor” a decade ago. At the time, Trump had accused China of “economic aggression”, a revisionist power trying to “shape a world antithetical to US values and interests”.
China is filling all possible vacuums left by US abdication from competition in the economic, strategic arenas, and above all in the realm of ideas. The quantum computing and artificial intelligence that has been employed to boost trade, marketisation, security and war games by China, of late, has emerged as another area for the battle of supremacy. If we read the 19th Party Congress Report of President Xi Jinping, we will find that China has identified Made in China 2025, the Belt and Road Initiative, 5G network, financial technology and the use of Chinese currency, the RMB, as core areas by way of which it will assert its global leadership in the realms of technology, cyberspace, geopolitics and economics. It is in this context that the hegemonic contest between the US and China, whether trade or otherwise, would be a protracted one.
What can be expected from China? The best China can do at the moment is to “talk a bit and fight a bit” for realising a bipolar world. To this end, it will reduce import duties on many products. For example, on 31 May 2018, China reduced tariffs for 1,449 products from its most-favoured nations, mostly member countries of the World Trade Organization. Duties on marine products and soybean have been slashed to as low as 2% and 0%, respectively. It will continue to forge better trade partnerships with the Asia-Pacific region and Eurasia, especially the Belt and Road countries, the European Union and depreciate the RMB to boost export to these countries and regions.
B.R. Deepak is Professor of Chinese Studies at Jawaharlal Nehru University, New Delhi